Understanding Pre-Market and After-Hours Stock Trading

The U.S. Stock Market is open for business for six-and-a-half hours—from 9:30 a.m to 4:00 p.m. ET—nearly every business day, and it draws crowds of thousands upon thousands of investors as soon as the opening bell rings. Wall Street is crowded during normal trading hours, but some investors are finding a less crowded space to trade in: the pre-market and after-hours stock trading sessions.

[VIDEO] Understanding Pre-Market and After-Hours Stock Trading

That’s right…you can actually trade before the market opens in the morning, and you can keep on trading once the market has closed in the afternoon. Of course, the playing field is a little different during off-market trading hours than it is when the full stock market is open, but we’ll cover that.

After-Hours Stock Trading

As its name suggests, after-hours stock trading occurs after the regular stock market hours—9:30 a.m to 4:00 p.m. ET—are over. After-hours stock trading takes place between the hours of 4:00 to 6:30 p.m. ET.

But why would you want to trade stocks in the after-hours trading session?

According to Chris Concannon, an executive VP in the Transaction Services Group at NASDAQ, “Many companies report earnings either before the market opens or after the market closes. The intrinsic value of a stock is constantly moving whether the market is open or not, and people want to access the market when the intrinsic value is changing.”

Pre-Market Stock Trading

As its name suggests, pre-market stock trading occurs before the stock market opens up for its regular hours of trading at 9:30 a.m ET. Pre-market stock trading takes place between the hours of 8:00 to 9:30 a.m. ET.

Investors like to trade in the pre-market session for the same reason they like to trade in the after-hours trading session…they want to get a leg up on the competition by reacting quickly to news announcements that occur when the regular market is closed.

Risks of Trading After Hours and Pre-Market

All investing involves risk, but the Securities and Exchange Commission (SEC) outlines the following eight risks that are specifically associated with trading in the after-hours and pre-market sessions:

1. Inability to see or act upon quotes: Some firms only allow investors to view quotes from the one trading system the firm uses for after-hours trading. Check with your broker to see which firms quotes you will be able to see and off of which quotes you will be able to trade.

2. Lack of liquidity: During regular trading hours, buyers and sellers of most stocks can trade readily with one another. During after-hours, there may be less trading volume for some stocks, making it more difficult to execute some of your trades.

3. Larger quote spreads: Less trading activity could also mean wider spreads between the bid and ask prices. As a result, you may find it more difficult to get your order executed or to get as favorable a price as you could have during regular market hours.

4. Price volatility: For stocks with limited trading activity, you may find greater price fluctuations than you would have seen during regular trading hours.

5. Uncertain prices: The prices of some stocks traded during the after-hours session may not reflect the prices of those stocks during regular hours, either at the end of the regular trading session or upon the opening of regular trading the next business day. This means that even if a stock price rises in after-hours trading, it may fall right back down when regular trading opens again and the rest of the market gets to cast its vote on the price of the stock.

6. Bias toward limit orders: Many electronic trading systems currently accept only limit orders in the pre-market and after-hours sessions. Limit orders may cause you to miss out on having a trade filled.

7. Competition with professional traders: Many of the after-hours traders are professionals with large institutions, such as mutual funds, who may have access to more information than individual investors.

8. Computer delays: As with online trading, you may encounter during after-hours delays or failures in getting your order executed, including orders to cancel or change your trades.

Conclusion: Understanding Pre-Market and After-Hours Stock Trading

If you are looking for an edge in your stock trading, placing trades in the pre-market and/or after-hours trading sessions may be a great place to start. Just remember that there are additional risks you need to be aware of.

Check with your broker to see if it offers off-hours trading and what you need to do to qualify.

HENRI

SO WHAT I AM GETTING HERE IS THAT THE PARTICIPANTS IN EXTENDED HOURS TRADING ARE PROFESSIONALS WITH ACCESS TO INFORMATION NOT AVAILABLE TO THE AVERAGE TRADER OR SAVEY INDIVIDUALS SITTING AT HOME OR POSSIBLY CORPORATE INSIDERS. INTUITIVELY, KEEPING THE ABOVE MENTIONED TRADERS IN MIND, I WOULD ASSUME THAT THEIR TRADES WOULD BE VERY LARGE. WHAT I DON’T UNDERSTAND ARE TRADES OF 100 OR LESS COMING ACROSS THE WIRE. EXPLANATION?

philly trader

my stock is x-dividend on a Tuesday, if I buy Monday after hours (4PM to 6:30PM) , will I get the dividend because I bought on Monday??

lmarkets

Yes you will

Bob Bunger

It seems to me that most people do not understand how stock prices are determined. The Open price of the stock is the price of the first transaction. The Close price is the price of the last transaction. No one “sets” the price at any time. A seller and a buyer agree on a price, and a transfer of ownership occurs. The price they agree to is the published price of the stock until another transaction occurs. But the published price does not tell you the price you can buy or sell the stock at. You can buy at the lowest price being asked, and you can sell at the highest price being bid. In other words, the next buyer and seller that can agree on a price establish the next price.

if you hold overnight with GTC will it sell when the market opens without you selling it?

lmarkets

Stan – if you put in a sell order that is set as GTC then it will execute when that price is available, whether that is the next day or the next week.

Tony Owen

Unless there is something I am missing, pre-market or after-market trading seems little more than manipulation of the markets. For example, a particular stock closes on a high or low and sometime before the market opens it’s fallen or risen significantly i.e. denying those investors limited to opening times any opportuinity to sell or buy. I don’t see how that is anything except manipulation if the average on-line or other investor can only place orders within the market open hours, and is locked out of the after-hours activity. The scope for corrupt practice by well-connected groups placing buy or sell orders in the after hours period is endless, particularly where a known hot/volatile stock is involved. And from your last line it seems not all brokers offer the service, nor do all investors qualify: quod erat demonstrandum.

Tony

John, I’m sorry but your video is not clear. Is the market open from 8:00 am in the morning till 6:30 pm or NOT? I’m being a bit facetious here. You talk about buyers and sellers, but most trading is computerized and what about specialists who are required to provide an orderly market. So Netflix today opened at 385, yesterday it closed at 335. so if I bought at 335 before the market closed, and then a half hour later I wanted to the stock at 335, but the news came out already, who determines what price is the right price. Totally confusing!

Johnman

I happened to visit this site, which is very good. Have a question: If I put a large volume order for Pre-Market and say, if it happens to meet the pre-market price at one point, is it sure to be executed? I would think it would. Also, you mentioned below, ‘Make sure your limit order is not queued’. What does it mean?

asianbeer

This aftermarket trading is just pure manipulation. I trade NOK – typical volume is 25 million shares a day , yet 100 shares can manipulate the price by 2-3%. It is absolutely stupid – it allows institutional traders to manipulate the market and yes , the market does open at the discounted premarket price so they can buy more shares and dump them later in the day when the price returns to normal. 100 shares should not be able to influence a stock that trades 25 million shares a day. This pre and post market trading should be limited to a % of the daily volume and trading fees should be 10X’s higher than regular trading fees. The pre and post market trading is one of the reasons I now do not trade stocks much anymore . The pre and post market trading has nothing to do with fundamentals only market manipulation.

meziggy

I agree with you!! it is DEFINITELY market manipulation and makes trading a joke…worse than what HFT does!!!

Scotty

asianbeer, your analysis above is not reflective of reality. After hours is not manipulation. I trade pre and post market and the market is simply THIN. This means there are not many players so if you want or need to execute an order in these hours you have to deal with the best bid or offer. 100 shares is not going to move the market anywhere, but it will “print” at an out of the money price if you are unwilling to wait for the open. “Limiting” pre/post trading is not a good idea. Your losses trading NOK are not the result of institutions out to get you. You are the source of your own losses.

Josh

This may be a silly question but I am new to the extended hours arena and was curious if you buy during pre market hours can you only sell during pre market? Or can you sell during normal trading hours or after market hours as well.
Thanks.

http://www.learningmarkets.com Learning Markets

Josh, great question. When you buy during pre-market or after-market hours, you not limited to selling only during those same periods. You can sell your shares at any time during normal market hours as well.

Options-Rookie

To all here…I find these discussions very helpful as I am new to Options trading and am still learning some of the basics. For instance, yesterday I had set up 3 trade trigger alerts for 3 out month/out of the money October Call Options (on one specific Stock) based on the values of those Options that were being provided by my brokerage site “TDAmer….” before the start of regular trading day. At the opening bell at 9:30am EST + 10 seconds, my 3 triggers sounded and all 3 Call Option ask/bid prices just shot up in value (step increase) to 44%, 55% and 63% consecutively!…and then all 3 just proceeded to gradually erode in value over the rest of the regular Market Trading Day. I have been puzzled for a day trying to figure out what would cause this significant step increase, in these Call Options right at the start of the regular trading day. Well based on this article, the answer must be Pre-Market Trading that had changed/increased the Stock price yesterday during pre-market trading hours and so as soon as the bell sounded, the Call Options spiked!

The question I have now is how do I see the Pre-Market Trading values for the Stocks/Options on my Watch Lists? and have my positions locked in to stay ahead of these step changes? and make some profit off this apparently common market event?

Any ideas for a rookie?

http://www.learningmarkets.com Learning Markets

You should be able to see pre-market and post-market prices on your broker’s trading station. If not, you can go to the Nasdaq website here:

Futures and currencies do run around the clock. Beginning Sunday evening until Friday evening, east coast USA time.

mark

My opinion, open the markets a 8 AM and close them a 6 PM and Do away with pre-market and after hours trading.

Pex

Can anybody please explain relationship between after-market trading and pre-market trading? Is it possible for stock to open next day at the similar price as it closed in regular market hours (even if in the after market this stock plummeted considerably, but without real change in fundamentals)? Are there some rules for this to predict or is it virtually unpredictable? Thank you.

http://www.learningmarkets.com Learning Markets

Pex, there are no set rules or requirements that dictate where a stock price has to open when the trading day begins. The opening price is determined by finding the point where the largest numbers of buyers and sellers can be matched up. Typically, if a stock has moved higher during after-hours or pre-market trading, the stock will open higher, and vice versa.

Jack

Thanks for the information.

Ted

If I set a Stop Loss order “good until cancelled” and the stock meets the criteria during after hours will it execute

http://www.learningmarkets.com Learning Markets

For most brokers, the order will not be executed in after-hours trading, but if the price is still below your trigger price the next day, the order will be triggered then.

cfcbh

looking for 24/7

Hose Heyomanoaise

I do not think it is fair to have these after hours and pre hours trading as I agree it feels like a form of manipulation and can cause panic where there is none. They should do away with this type of practice and put everyone on an equal playing field of all aspects.

timbo44

Believe me, you can watch your stock go up in the aftermarket (I have) and then tried to jump on (I have) but then when THE NYSE opens, traders aren’t really swayed by what happens, only by what happens between 9:30 and 4. I t can be a convenience if your intention was to sell anyway and you get a slightly better price. Would you not want a better price if you were selling?

peter

hi John,

Thanks for the overview of the after hours and pre-market trading.

I hate to be reactive but these extended hours (during which not all investors have equal access) simply seem an opportunity to manipulate the market.

I trade using an on-line brokerage – my trades made after hours are executed only upon the start of normal hours the next day.

The market should be equally available to all traders/investors for both regular and extended hours.

peter

http://www.LearningMarkets.com John Jagerson

Peter – I tend to agree with you, but keep in mind that the markets are a commercial enterprise. That means that if you are willing to pay for it you can trade whenever you want.

jim

I believe you are still able to place an after hours trade. Just make sure the limit order is not queued when you make your order.

Alice Johnson

Peter – You can do an after market trade using your internet broker, you just have to put it in as a “limit” and put in “extended hours” instead of good for the day.

Steven

Hi John,

In aftermarket trading I’ve seen very small volume trades that are 1 to 5% above or below the prices in Level II. The effects I’ve seen, causing my intpretation, is that a trade above the Level II leaves a PSAR spike upwards. This, then, causes trading to dive as the effect trickles through the different windows; 1, 5, 10, 30, 60 minutes. A trade below causes a downward spike and this drives prices up as time progresses. I call it ‘Spiking the PSAR’. What type of trade causes this, covering a short? What? I see this used, I’ll say used since it looks intentional, to steer prices or take control of the trading direction, or, extend a rally for extra profit before dropping the hammer (or another spike so the stock drops like a rock).

Could you describe what is behind this?

Thanks, Steven

Steven

Hi John, I hope you’ll shed some light on my question. I see trades happen after hours whose prices don’t even come close to those in Level II. I see an effect on the trading the following day but am wondering what types of trades/options/idk happen without it showing on Level II….

Thanks, Steven

Rick Lewellyn

John As I am trying to fully understand this pre and aftermarket trading.
Today GMCR closed at $88.11.
Then in aftermarket trading volume of 1,144210 the price went up to $104.60
Positive QTR financials
Assuming zero trades for pre-market
2 Questions
1) Will the market open at $104.60 ?
2) Did all of the investors receive their trades that participated in the 1,144210 trades?
Thank you

Rick

http://www.LearningMarkets.com John Jagerson

Wow that is some huge volume in the aftermarket – interesting.

Why a stock opens at a specific price is due to a combination of factors. However, there is no obligation on the part of market makers to open the stock at the price it was trading in the aftermarket the day before. They open the stock at a price that they think there are the most buyers and sellers to match the orders. What if GMCR’s CEO died tonight? Would they open the stock at 104? Probably not – orders will probably already be showing to sell and buy at a lower price to reflect the increased uncertainty. Does that help?

http://www.facebook.com/ Bobbie

I\’m so glad that the inertnet allows free info like this!

Billy Staples

I have all of a sudden after what I thought was long enough to know this, have all of a sudden become very confused.

In your example, you say for example a stock closes regular market hours at 4pm at $25.
In after hours it goes up to say $29 and thats what it ends up at when 8pm comes and after hours ends. If you traded in After Hours or not, I have 2 questions

1- If you go to pre-market the next morning, as soon as it opens for trading, what is the initial price?
Is it where after hours ended at $29 or is it at the ‘official’ close of $25 at the 4pm mark?

2- If at 4 pm, the stock closes at $25 and it leaves you lets say with a margin call of $7. After hours again the stock went up to $29 and in effect would be enough to cover your margin call. Why doesn’t work that way?

I know if I buy or sell AH or PM it shows the next day or session in my balances and share amount. Do I not see the benefits of the increase of the $4 increase in my account?
I was just informed that my account is figured from mark to market. That if my stock closed at $25 at 4 pm, it opens at $25 at 9: 30 regardless of AH or PM activity.

Yet when I pulled up my chart at the same brokerage, the first candle of the day at 9:45 ( a 15 minute 5 day chart) it showed the open at $29. (this is of course using the numbers we have been using for example purposes)

Do I not reap the benefits of AH and PM tradings in my account? If I trade or not. Will I not see that $4 increase at market open the following day?

I have asked way too many questions for this subject and I apologize and appreciate a reply to any of my above concerns. I have been reading as much as I can about this and your white board session was by far the most informative and easy to understand. Especially for someone who has now become a totally inexperienced and not so knowledgeable investor after many years

much thanks in advance

BS

http://www.LearningMarkets.com John Jagerson

Billy – 1. the initial price will be wherever sellers and buyers can agree on fair value. That may be different than where they were the previous night.
2. Your broker sets their own rules for margin-calls. Not all will be the same but usually aftermarket prices are not accounted for because there is not enough liquidity. If the stock moves after hours they don’t open it at the close of the previous day – it will open at a new price (whatever that is) that is acceptable between the buyers and sellers waiting to execute their orders that morning. I don’t think I quite understand what you are talking about in your account. Are you suggesting that because you had a margin call the night before that the broker has closed your trade at the prior price rather than at the open price?
3. If you held a stock overnight and it gaps up you should have those profits in your account just like anyone else would. Unless your trade was liquidated by your broker for some reason. I think this is probably a discussion for your broker. A word of advice is to always make sure you completely understand the impact of trading on margin before you use a margin account. You don’t need margin to trade stocks so it won’t stop you from being active while you go through the learning process.

Thanks for the compliments.

Steve Pirsch

Who does trades before the extended hours opens? The prices change before the 8:00 am EST and I have no access. The market should be equally available to all traders/investors for regular and extended hours only. Better yet for regular hours only.